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Friday, May 14, 2010

The Truth Behind Zero Percent Rate of Interest

Most people get lured by advertisements that charge zero percent rate of interest. Most people buy products that are available at zero percent rate of interest even if they don't have much use for the product. Even though your cost of borrowing is zero and you are not paying any interest for the items purchased you still have to repay the amount borrowed. Companies selling their products at zero percent rate of interest are benefited because there is an increase in their sales. Many people who take zero percent interest loans do not calculate their monthly cash outflow. Even if you have to pay a small amount every month, this amount is affecting your savings. If you avoid spending on products that you don't need you can save more for your future.

However not all zero percent loans are bad. There are many states that offer zero percent loans to students who want to peruse their higher education. These loans have little risk attached to them and aid you in completing your studies. Some students tend to misuse this facility and apply for maximum loan possible. Once their loan is approved they spend the loan on their education without knowing how to repay the amount borrowed. Therefore it is important that students don't over borrow and look at alternate sources of financing their education. These students can take up part-time jobs to pay for their education expenses.

So next time you see an advertisement that charges zero percent rate of interest when you buy a particular product, ask yourself if you really need the product. If there is no genuine need for the product then it is best that you avoid buying the product.